Here’s what to know beyond why Walgreens Boots Alliance, Inc. (WBA) is a trending stock

Walgreens Boot Alliance (WBA) recently made Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.

Over the past month, shares of this largest US drugstore chain have returned -8.2%, compared to the +1.4% change in the Zacks S&P 500 composite. During this period, the industry Zacks Retail – Pharmacies and Drug Stores, of which Walgreens is a part, lost 1.2%. The key question now is: what could be the future direction of the title?

While press releases or rumors about a substantial change in a company’s trading outlook usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.

Revisions to earnings estimates

At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.

We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

For the current quarter, Walgreens is expected to post earnings of $0.78 per share, indicating a -33.3% change from the year-ago quarter. The Zacks consensus estimate has changed -4.9% over the past 30 days.

For the current year, the consensus earnings estimate of $5.02 indicates a change of -5.5% from the prior year. Over the last 30 days, this estimate has changed by -0.7%.

For the next fiscal year, the consensus earnings estimate of $4.63 indicates a -7.8% change from what Walgreens is expected to report a year ago. Over the past month, the estimate has changed by -1.3%.

With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, Walgreens is ranked Zacks Rank #3 (Hold).

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Expected revenue growth

Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a business.

In the case of Walgreens, the consensus sales estimate of $32.49 billion for the current quarter indicates a year-over-year change of -5.2%. Estimates of $132.65 billion and $134.13 billion for the current and next fiscal year indicate changes of -3.4% and +1.1%, respectively.

Latest reported results and history of surprises

Walgreens reported revenue of $32.6 billion in the last reported quarter, representing a year-over-year change of -4.2%. EPS of $0.96 for the same period versus $1.51 a year ago.

Compared to the Zacks consensus estimate of $32.74 billion, reported revenue is a surprise -0.43%. The EPS surprise was +1.05%.

The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus revenue estimates three times during this period.

Evaluation

Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of its price.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on. ), which helps determine whether a stock is overvalued, correctly valued, or temporarily undervalued.

Walgreens is rated A on this front, indicating that it is trading at a discount to its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information about Zacks.com might help determine whether it’s worth paying attention to the market buzz about Walgreens. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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